Tax payable in Canada for Term deposit interest in India

[neutron]

Hi Everyone,
I am a resident of Canada and need to file my Canadian Taxes. I have term deposits in India and understand that I have to report World Income.

My question is that do I simply add my India income(Interest income) and pay taxes as per the Canadian tax rate or I need to pay only 15% of the interest income.

According to India- Canada tax treaty (link below), Article 11 states that tax so charged shall not exceed 15 per cent of the gross amount of the interest.

https://www.treaty-accord.gc.ca/text-texte.aspx?lang=eng&id=102409

Any one who has already filed Canadian taxes and shown Interest Income from India term deposits can please guide me.

Please help

 

[mad_hatter]

You have misunderstood the tax treaty. It should be interpreted this way :

1. Interest arising in a Contracting State (India) and paid to a resident of the other Contracting State (Canada) may be taxed in that other State (Canada)
2. However, such interest may also be taxed in the Contracting State (India) in which it arises and according to the law of that State (India), but if the recipient is the beneficial owner of the interest, the tax so charged shall not exceed 15 per cent of the gross amount of the interest.

Your interest income will be fully taxed in Canada. You are allowed a foreign tax credit for the Indian 15% withholding tax.

 

[neutron]

You have misunderstood the tax treaty. It should be interpreted this way :

1. Interest arising in a Contracting State (India) and paid to a resident of the other Contracting State (Canada) may be taxed in that other State (Canada)
2. However, such interest may also be taxed in the Contracting State (India) in which it arises and according to the law of that State (India), but if the recipient is the beneficial owner of the interest, the tax so charged shall not exceed 15 per cent of the gross amount of the interest.

Your interest income will be fully taxed in Canada. You are allowed a foreign tax credit for the Indian 15% withholding tax.

Thank you very much Mad_Hatter. I am confused by the last line you wrote "You are allowed a foreign tax credit for the Indian 15% withholding tax"
What does it actually mean?
If I earn CAD 1000 Income from Interest in India and pay CAD 300 Taxes in India, how much foreign tax credits I am eligible for? What will imply here for "foreign tax credit for the Indian 15% withholding tax" and how much income will be taxable here in Canada

 

[mad_hatter]

The full CAD 1000 will be taxed in Canada. The maximum foreign tax credit available is CAD 300, However, the actual amount available to you depends on the your total income. If you use a tax software, it will calculate the foreign tax credit automatically and subtract it from your tax payable.

 

[mad_hatter]

According to the tax treaty, if you earned CAD 1000 interest income, the India authority should only withhold CAD 150.

 

[neutron]

According to the tax treaty, if you earned CAD 1000 interest income, the India authority should only withhold CAD 150.

Thank you very much. Talked to more than 4 CA here in Canada and none of them seem to have any clarity. You made my day. Many Thanks .Cheers

 

[neutron]

According to the tax treaty, if you earned CAD 1000 interest income, the India authority should only withhold CAD 150.

Many thanks again
One more query I had was that while reporting Income from India, do I report Taxable Income in India or Total income. In India, the actual taxes paid is on taxable Income and I have deducutions through Investment in Pensions and Medical Insurance which reduces my tax liability in India. So, while reporting my world Income in India, do I report my Taxable Income from India or Total Income earned in India(without deductions such as PPF, Medical premium etc)

Say I earn CAD 10,000 in india but my taxable Indian Income is only CAD 7000, Do I report CAD 10,000 or CAD 7,000 as World Income in Canada.

 

[mad_hatter]

I don't understand, if you are a Canadian tax resident, why are you reporting tax in India? Do you have other income beside interest income?

 

[neutron]

I don't understand, if you are a Canadian tax resident, why are you reporting tax in India? Do you have other income beside interest income?

Hi mad_hatter, I am only earning income through Fixed deposit investment in India. My Bank deducts tax at source from the interest it pays in my bank account. I am investing a portion of my interest income in Pension Funds and Medical Insurance which reduces my taxable income and my overall tax liability.
So, my question is:-
1. Do I need to file taxes in India
2. While reporting my World income in Canada, do I declare my taxable Indian income or the entire amount I earned through Interest in India

PS:- My only source of income in India is through interest I receive from my Term deposit in bank account

 

[mad_hatter]

You would need to check with Indian tax authority to determine whether you need to file a tax return in India. I find it surprising that you can continue to contribute to Indian pension fund when you are not longer an Indian resident.

You would declare the entire interest income in Canada. Your maximum tax credit is limited to the actual tax paid in India.

 

[neutron]

You would need to check with Indian tax authority to determine whether you need to file a tax return in India. I find it surprising that you can continue to contribute to Indian pension fund when you are not longer an Indian resident.

You would declare the entire interest income in Canada. Your maximum tax credit is limited to the actual tax paid in India.

Thank you so much..

 

[neutron]

You would need to check with Indian tax authority to determine whether you need to file a tax return in India. I find it surprising that you can continue to contribute to Indian pension fund when you are not longer an Indian resident.

You would declare the entire interest income in Canada. Your maximum tax credit is limited to the actual tax paid in India.

Hi Mad_Hatter,
Please find the link of Govt notification for PPF account held by Non-Resident.
https://dea.gov.in/sites/default/files/NRI.pdf

I had the following query:-
If I earn CAD 10,000 in india and the taxes are deducted as CAD 1200 but my actual tax payable is only CAD 800, Do I get foreign tax credits of CAD 800 or CAD 1200.
Thank you again for all your help. Your inputs have been very useful to me

 

[mad_hatter]

Hi Mad_Hatter,
Please find the link of Govt notification for PPF account held by Non-Resident.
https://dea.gov.in/sites/default/files/NRI.pdf

I had the following query:-
If I earn CAD 10,000 in india and the taxes are deducted as CAD 1200 but my actual tax payable is only CAD 800, Do I get foreign tax credits of CAD 800 or CAD 1200.
Thank you again for all your help. Your inputs have been very useful to me

The maximum tax credit available is CAD 800, however, the actual credit you can get depends on your total income.

 

[Shankar6]

Hello Mad_Hatter,
I was reading the DTAA from this site https://www.treaty-accord.gc.ca/text-texte.aspx?lang=eng&id=102409. I noticed that under the section Interest it says the following.

1. interest arising in India and paid to a resident of Canada shall be taxable only in Canada if it is paid in respect of a loan made, guaranteed or insured, or a credit extended, guaranteed or insured by the Export Development Corporation; or
2. interest arising in Canada and paid to a resident of India shall be taxable only in India if it is paid in respect of a loan made, guaranteed or insured, or a credit extended, guaranteed or insured by the Export-Import Bank of India (Exim Bank).

This is in contradiction to what has been stated before in the same treaty as below:

1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.
2. However, such interest may also be taxed in the Contracting State in which it arises and according to the law of that State, but if the recipient is the beneficial owner of the interest, the tax so charged shall not exceed 15 per cent of the gross amount of the interest.

As always really grateful for your guidance. Thank you!

 

[steaky]

Hello Mad_Hatter,
I was reading the DTAA from this site https://www.treaty-accord.gc.ca/text-texte.aspx?lang=eng&id=102409. I noticed that under the section Interest it says the following.

1. interest arising in India and paid to a resident of Canada shall be taxable only in Canada if it is paid in respect of a loan made, guaranteed or insured, or a credit extended, guaranteed or insured by the Export Development Corporation; or
2. interest arising in Canada and paid to a resident of India shall be taxable only in India if it is paid in respect of a loan made, guaranteed or insured, or a credit extended, guaranteed or insured by the Export-Import Bank of India (Exim Bank).

This is in contradiction to what has been stated before in the same treaty as below:

1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.
2. However, such interest may also be taxed in the Contracting State in which it arises and according to the law of that State, but if the recipient is the beneficial owner of the interest, the tax so charged shall not exceed 15 per cent of the gross amount of the interest.

As always really grateful for your guidance. Thank you!

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